Sunday, November 25, 2012

Krugman Advice: Print Money

This needs to be filed away to throw in Paul Krugman's face. He writes:

It’s very hard to come up with any reason why either the US or the UK might default, since they can simply print money if they need cash. And given the absence of real default risk, long-term interest rates should be more or less equal to an average of expected future short-term rates (not exactly, because of maturity risk, but that’s a fairly minor detail).

So if you expect the US and UK economies to be depressed for a long time, with the central bank keeping rates low, long rates will be low too — end of story.

But won’t that money printing cause inflation? Not as long as the economy remains depressed. Budget deficits could lead people to expect higher inflation down the road, once the slump finally ends — but that would be a good thing for the economy in the short run, discouraging people from sitting on cash and weakening the exchange rate, thereby making exports more competitive.

Krugman is correct that the US and UK can print up money to buy government debt, but after that he is clueless. He has no idea where in the business cycle we are and has no idea of the developing price inflation.

Bernanke's aggressive money printing is creating a new manipulated boom, so the economy won't be "depressed for a long time"---so there is no reason Krugman should be discussing such at the present time. But more important, it appears that the demand to hold cash is shrinking which will put upward pressure on prices along with upward pressure from the new money Bernanke is adding to the system. On top of this, from the supply side, meat will be less plentiful next year because of this year's drought which caused farmers to send cattle to market early. Bottom line: We have the potential for a perfect storm of events that could send prices soaring in 2013. The last thing that is required at this time is further encouragement of Bernanke money printing from an NYT economist.

"First, families have to pay back their debt. Governments don’t — all they need to do is ensure that debt grows more slowly than their tax base. The debt from World War II was never repaid; it just became increasingly irrelevant as the U.S. economy grew, and with it the income subject to taxation."

Government debt is, apparently, the ultimate Ponzi scheme. You don't have to repay it because you can keep increasing tax revenues and inflating the currency ad infinitum. It just magically disappears!

He also proffers the gem:

"Second — and this is the point almost nobody seems to get — an over-borrowed family owes money to someone else; U.S. debt is, to a large extent, money we owe to ourselves."

Amazing group-think! We're all just one person, and we owe money to ourselves. If we anthropomorphized a dog in the same way Krugman anthropomorphizes "aggregate economics," we'd be called (rightfully) crazy. And what about debt we owe to China? Why not just include the whole world? Then there'd be no debt. The world would just owe it to itself!

Krugman is either a complete retard, one of the most evil public figures on the planet, or both.

Krug is gonna have a lotta 'splainin to do when he is proven catastrophically wrong over the next year. As soon as The Bernank quits adding $85B per month to the system just to keep it working the crash will be epic.

Unbelievable for Krugman to claim that a central bank can print as much money as possible and it won't cause inflation if the economy is depressed. That's clearly false from a historical perspective. We can look at Weimar, Zimbabwe, Argentina, Rome, and others as clear historical examples of economies that were not saved by money debasement regardless of the fact that they were economically depressed. The lynch pin that holds the house of cards from crashing is simply the Dollar's reserve status. However, not even the dollar's reserve status can hold back the tsunami of inflation ahead. Central banks and governments around the world are abandoning the dollar. All they see from Washington D.C. is corruption and largess and I would imagine they want no part of this train wreck.

This is why the Yen, Euro, Dollar and Franc seem stable- all of them are "pegging" to each other, so the only place the inflation shows is in commodities and that can be masked for a while. Once the mask is removed, the game will enter "Final Jeopardy" and the loser will walk the plank.

Inflation is always higher than reported. That's how the system is set up. He is quite right about how the system works. To say he is clueless is just incorrect. You don't like the system, that's a different story. Let me ask you this, do you pay your employee less (cut their wages) because the market or commodity price (deflationary) is down?

Krug advice has a lot of objective reasons to be heard! Guess who really understand the situation would not suggest that US and UK economies to be depressed for a long time, with the central bank keeping rates low, long rates will be low too ..it is not the end of story.Kevin Right